Using a simple overlapping generations framework, calibrated to four Southern European countries, we analyze the relationship between tax evasion, determined endogenously, and financial repression. We show that higher degree of tax evasion within a country, resulting from a higher level of corruption and a lower penalty rate, yields higher degrees of financial repression as a social optimum. However, a higher degree of tax evasion, due to a lower tax rate, reduces the severity of financial restriction.
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Paper provided by University of Connecticut, Department of Economics in its series Working papers with number
2005-34.
Length: 39 pages Date of creation: Jul 2005 Date of revision:
Jun 2007 Handle: RePEc:uct:uconnp:2005-34
Note: This paper previously circulated under the title "Policy Response of Endogenous Tax Evasion" Contact details of provider: Postal: University of Connecticut 341 Mansfield Road, Unit 1063 Storrs, CT 06269-1063 Phone: (860) 486-4889 Fax: (860) 486-4463 Web page: http://www.econ.uconn.edu/ More information through EDIRC
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Find related papers by JEL classification: E26 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization
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